Making Sense of UPI Transactions
Since its debut in the form of a pilot launch with 21 member banks in April 2016, Unified Payments Interface (UPI) has made phenomenal progress. The number of transactions in the month of November 2020 crossed 2.2 billion. That equates to 73.6 million transactions per day or 852 transactions per second! The numbers are mind-bending. For India, it is a matter of pride from a point of technological prowess, and a matter of delight from a point of democratization of digital payments.
Disaggregation of numbers and a closer look at the transaction figures leads to some interesting analysis.
The number of participating banks has grown almost ten times since its launch. Currently, 200 banks are registered on and using UPI platform, starting with just 21 banks in April 2016. Obviously, with an increase in the number of participating banks the number of potential users and actual users has also increased, reflecting in the number of transactions per month. Interestingly, though the number of transactions and aggregate value of transactions has continuously increased, barring a decrease in the month of March and April in 2020; the average value of transactions has remained in the range of ₹1,500 and ₹2,000. In fact, COVID-19 has led to an increase in the rate of growth of number of transactions and aggregate value of transactions as evident from the slope of blue and orange lines towards right of the dotted line versus the slope on the left of the dotted line. However, the average value per transaction has still remained in the same range as during the pre-COVID-19 period. Apparently, the most frequent use is for bill payments (especially electricity) and for recurring expenses, among old and new users alike. Therefore, even with an increase in number of transactions (mostly due to addition of new users, and also perhaps old users use it more frequently), average amount per transaction is stable. Probably, people use other payment methods for higher value transactions.
Another interesting point that emerges from the data is that there is no correlation between the number of transactions and the value of transactions among different service providers. This implies that an app that may have a large number of people using it, may be using it for low value transactions; while another one may have fewer number of transactions but a higher aggregate value throughput. Google Pay, Phone Pe, and Paytm Payments Bank are the three top participants in terms of number of transactions with 960 million, 868 million and 260 million transactions respectively in November 2020. However, the average value of transactions on these apps is ₹1,681; ₹2,020; and ₹1,114 respectively. In terms of the average value per transaction, CRED, SBI apps, and BHIM are the top three participants with ₹10,379; ₹5,668; and ₹3,171 as the average transaction value. Looking at the figures, it appears that the average transaction value is primarily dependent on the customer segments that these participants are targeting; though there could be other contributing factors as well.
All these numbers look impressive, and the progress is commendable. However, one big worrying occurrence is the high proportion of transaction failures. The proportion of failed transactions in the last three months (September to November 2020) was 10, 10, and 8 percent respectively; corresponding to a total of 190, 211 and 187 million failed transactions in these months. These are massive numbers. Again, a closer scrutiny of the figures provides an interesting insight. State Bank of India, Axis Bank, and HDFC Bank- which are the top three banks by the number of transactions (as remitter bank)- have a transaction-failure rate of 9.47 percent, 2.83 percent, and 6.54 percent respectively.
Of these failed transactions, a higher proportion failed due to reasons such as a customer entering an invalid pin, incorrect beneficiary account etc., or due to other business reasons such as exceeding per transaction limit, exceeding permitted count of transactions per day, exceeding amount limit for the day etc. Such declines are called “business declines”, which is 6.35 percent, 2.27 percent and 4.69 percent for SBI, Axis Bank, and HDFC Bank in November 2020. Within the “business decline” category, the performance of banks is in a wide range; Axis Bank and Yes Bank have 2.27 and 2.96 percent business declines, whereas Allahabad Bank and Corporation Bank have 15.79 and 18.12 percent respectively in November 2020.
The other category is of “technical decline” defined as ‘transaction decline due to technical reasons, such as unavailability of systems and network issues on bank or NPCI side’. These are fewer in comparison to business declines. SBI, Axis, and HDFC Banks have 3.12, 0.56, and 1.85 percent technical declines in November 2020. Among all banks, the lowest percentage of technical declines was of Oriental Bank of Commerce and Paytm Payments Bank with 0.08 percent (each) of their total transactions as remitter bank. The highest percentage of technical declines was of Corporation Bank and Union Bank of India 13.53 and 4.80 percent respectively.
These figures indicate that while there is scope to improve the technology and infrastructure, especially mobile phone and data connectivity; a serious review of customer awareness and capability to conduct digital transactions may be required. It is not uncommon to find small merchants and business correspondents/agents who have no clue about troubleshooting or process to follow for a failed transaction of their customer. Such instances can easily erode customers’ trust thereby delaying the adoption of digital financial services.